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Strategic Investment and Industry Risk Dynamics

Maria Cecilia Bustamante

University of Maryland - Department of Finance

July 1, 2014

Review of Financial Studies, Forthcoming

This paper characterizes how firms' strategic interaction in product markets affects the industry dynamics of investment and expected returns. In imperfectly competitive industries, a firm's exposure to systematic risk is jointly affected by its own investment strategy and the investment strategies of its industry peers, such that the dynamics of its expected returns depend on the intra-industry value spread. In the model and the data, firms' betas and returns correlate more positively in industries with low value spread, low dispersion in operating mark-ups, and low concentration.

Number of Pages in PDF File: 59

Keywords: expected returns, investment, imperfect competition, strategic interaction, industry concentration

JEL Classification: L11, L22, G11, G12, G31

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Date posted: June 19, 2009 ; Last revised: July 17, 2015

Suggested Citation

Bustamante, Maria Cecilia, Strategic Investment and Industry Risk Dynamics (July 1, 2014). Review of Financial Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1421748 or http://dx.doi.org/10.2139/ssrn.1421748

Contact Information

Maria Cecilia Bustamante (Contact Author)
University of Maryland - Department of Finance ( email )
Robert H. Smith School of Business
Van Munching Hall
College Park, MD 20742
United States
HOME PAGE: http://https://sites.google.com/a/rhsmith.umd.edu/mcbustam/?pli=1
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References:  15